In this morning's video, I put forward an idea that will not, I know, please everyone. I suggest that land value taxation (LVT) is not a panacea or solution to the problems we face in the tax system.
Land value taxation is a 19th-century idea that has very rarely been used. Its proponents say it is the great unavoidable tax that could potentially replace all other taxes. The problem is it is based on assumptions that might be fine in theory but which would be incomprehensible in practice – and that's no way to impose a tax charge.
The audio version is here:
The transcript is:
Land value tax is something that has been promoted for a long time and which I've never really got to grips with. Let's be clear why.
The proponents of land value tax like to claim that it is the universal answer to all taxation problems because land is in finite supply, we can always identify who owns it, it's always here in the UK, therefore we can tax it, no one can avoid the charge, and what is more, this is the fairest way in which to levy all taxation, because all of our wealth, apparently, is derived from the land.
First of all, let me say, I don't think all of our wealth is derived from the land. I think a lot of our wealth is derived from our labour. There is no doubt that we use inputs from the land in that process, but to claim that somehow or other the only one of the factors of production that needs to be taxed is land is, to me, very odd.
I also think it very odd that we claim that we do not need to tax labour because if we were to do so, then I believe that the capacity of a government to raise revenue would be severely diminished, and I do wonder whether those who promote land value tax also have that agenda in mind. I don't believe it is possible to raise that much revenue from land.
I also, in practice, have major problems with the ways in which land value taxation works.
Let's be clear, land value taxation is not like a council tax. Council taxes, as all those who pay them in the various countries of the UK, and each has a different system, will know are quite conceptually different.
For example, in England, where most people will be paying council tax inside the UK, land values haven't been re-rated since 1992, which is pretty absurd because, for example, the house in which I am recording this video was built in 2003, but it does nonetheless have a 1992 valuation for council taxation purposes, which doesn't really make sense.
But land value taxation makes this problem with valuation even more difficult to understand. Land value taxation is not charged on the value of a property, which most of us can pretty much get our head around because there is a fairly identifiable price for most properties in the UK without too much difficulty now being required to establish it. I can go on to Rightmove or Zoopla and get a fair idea of what my house is worth. But that is not what land value taxation charges to tax. Land value taxation charges the rental value of the land underneath the property. And that is something quite different.
The purpose of this is to create a charge to tax that is on the value of the land, whether or not there is a building on it. In other words, what you're trying to charge is the value of the land itself.
But, none of us really understand the difference between the value of our property and the value of the land on which it stands. We are not used to undertaking that valuation. And there would be significant confusion if all the properties of the UK were revalued in this way because people would say, what does that mean? There would be enormous numbers of appeals against values as a consequence and a feeling of disquiet as to what that value might be.
And the charge to tax on this made up, guessed, assumed, estimated, use whichever words you will, value, will be very hard.
I have seen a recent proposal that has suggested it should be used to make good the shortfall that Rachel Reeves supposedly has in her budget of £22 billion a year. Increasing council taxes by £22 billion pounds a year would put them up by maybe 50 per cent. And if we were to try to replace other taxes with land value taxes, as some of the proponents of that charge suggest, then the price would skyrocket.
Now, there's also a lot of naive comment also made about land value taxation; for example, that it would be charged on the owner of the land and not on the tenants because that supposedly is fairer. I call that claim completely naive. That's like saying the interest paid by an owner on the loan that they have taken out to buy a property which they have then let does not have any impact upon the rent that they charge. I promise you, it does, and that's precisely why rents have gone up so significantly over the last few years, because interest rates have risen. So, the naive assumption that somehow or other a landlord will pay a tax and not pass it on inside the rent that they pass to a tenant is absurd. Let's ignore that, it's a stupid claim.
But let's just go back to the substance of this. Can land value taxation really capture a fair charge that should be levied, or is there a better way of capturing that charge in some other way? Because what we're trying to capture is the value of land. Could we deal with that better by simply increasing the tax rate on rents?
Why not? Because we could do that. For example, I have proposed that all rents should be subject to what is called an investment income surcharge of 15%, which would be, broadly speaking, the equivalent of applying a national insurance charge to them. And if that rent was received in a company, we could have a higher corporation tax charge instead. This would be a much easier way of capturing additional revenue from land.
Could we also increase the rate of capital gains tax paid on the sale of land? Yes, of course we could.
And could we have what is called a development land tax, which Labour tried at one time and which was abandoned by Thatcher long ago? A development land tax was a charge on the increase in the value of land when it moved from having no planning permission on it to having planning permission on it. In other words, part of that enormous increase in the value of land which arises when planning permission is granted on it, would be taxed at that time, I think perfectly fairly.
So, are there better ways than trying to create a whole new tax with a basis of valuation which would be entirely unknown, unproven, and incomprehensible to most people as the basis for a charge? Yes, I think there is.
I'm a pragmatist when it comes to tax. I do believe people should have a real chance of understanding the taxes that they pay.
I don't think most people would understand a land value tax.
It's one of those taxes that looks wonderful on a theoretician's blackboard, or inside a textbook, but which, when it comes to the real world, looks a bit rubbish, to be totally honest.
I think there's good reason why we haven't tried it. I don't think we will be. I think there are better ways of extracting value from rents when it comes to taxation, and I've suggested some of them, and more could be explored, but land value tax is not, I think, going to be on anyone's agenda in the near future.
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You make a convincing case against LVT becoming a major contributor to the tax take, with which I concur.
However, the notion of not directly taxing land at all suggests a potential lost opportunity.
I favour widening the tax system, in part to reduce income tax, but primarily to give governments a range of measures to tweak the tax take. Of course, each of these ‘little’ taxes would need to be fair, readily assessed, easily collected and with no loopholes. Not all would need to be progressive, say, though overall they would.
I favour an intelligent tax system that can respond rapidly, inter alia, to meet real needs, emergencies and inflationary pressures.
Let’s imagine a low-ish per hectare standard rate on all land. Specific land uses might be exempt (eg. wildlife reserves, reservoirs), others might attract a premium (eg. highways, urban development). The cost to the landowner would be minuscule.
Do you consider that a small-scale Land Value Tax on these lines would also fall foul of your critique and to the same extent?
It might have a role, but I am increasingly unconvinced
I do not believe Land Tax is a “panacea”; all I argue is, it has a viable and effective place in the armoury of government tax, more than is being allowed for. Most people or corporations that benefit from the economy, require a real foothold in it. Accountancy is footloose, you can move accounting entries anywhere. The difference is the point of leverage.
As for understanding; for most of Britain’s history until the 20th century Land was fundamental to tax in Britain. It didn’t change because suddenly people become financially literate and sophisticated; it was avoided by the major owners of land in the house of Lords, who traded the right to push most tax off land and elsewhere in land owners interests, in a deal with the Chancellor Lloyd George not to tax land further to end the power of the House of Lords to block Finance Bills. World War I, nothing else stopped the liberals returning to the Land Tax. They never again formed a Government. The Conservatives would never touch it. These are the facts.
But the profile of tax and taxpayers has changed enormously since then, John. We have to allow for that.
It was the 1911Parliament Act which ended the Lords’ ability to block ‘money bills’. Or are you saying the World War ended the possibility of changing it back?
Quite. Talking about land and tax when land was the major source on income in the past is rather irrelevant now. Landowners in Cornwall who had access to minerals did very well and probably paid little tax.
Both.
As fo the passage of time. some things do not change. The role of property in British politics is profound, and enduring. The sovereignty of of Government is defined by the capacity to tax and issue money; but always defined by the land over which it holds jurisdiction. That should never be underestimate, or dismissed.
I am not doing so
But equally I do not want a tax system based on fictional and highly disputable values
Council tax is bad: this would be worse
In the global world who owns what is opaque. It is a great deal easier to enforce transparency on land ownership in your own jurisdiction. What you can identify, you can tax. The land is immobile. It cannot be spirited away. Accounting is on wheels, and has wings; gone in the blink of an eye.
60% of UK assets are “non-produced”. Property is critical here (ONS, Kumhof, Tideman, Hudson & Goodhart; CEPR 2021). Mobile assets are hard to tax. Property is not.
Property is a factor quite distinctive because supply is not affected by price. This should make it more attractive and practically more attractive to tax, not less.
Sorry John – bit this is naive
It is at least as hard to prove who owns land in the UK as it often is to prove who wons a Cayman Island trust
We will have to differ – biut you are thinking about what looks good on blackboards, and not what works. That is not a good idea when it comes to tax. The Venn diagrams are sometimes very far apart.
We make it hard; we can enforce property transparency. It is a choice. Choice is more difficult over entities based on accounting in a fleeting, digital global world. Now it is here; now it is there.
Land is immobile.
I spent my whole life in private enterprise. I can say with complete confidence that I am not naive. I trust precisely nothing.
And how would you deal with cases where disclosure was not made? Would you forfeit the land? The alternative would be legal charges on the land – bit what if it was not sold? How are you going to effect recovery?
Where disclosure is refused, there should be a hierarchy of penalties that government could apply to make whatever purposes the land owner is using it for more difficult; but certainly, ‘in extremis’ not excluding compulsory purchase, with penalties. It would and should depend on circumstances.
In our towns and cities there are derelict sites that drag down whole communities. There should be much wider controls over property to pass and enforce ‘use it or lose it’ legislation; to allow redevelopment. This affects whole city centres. Take also redevelopment (Crossrail for example; £billions were made by property from the citing of stations. Property owners did nothing but count the money from value rises). In cases of redevelopment opaque ownership should prevent benefit passing to an unknown owner. Property ownership is one thing, the tyranny of property ownership is quite another.
The reason slum clearance became such a problem in the UK, that it led to mass suburbanisation as a late (20th century) solution to an endemic problem, was the vicious nature of the sanctity of property. The only real slum clearance that took place on any scale in Britain until after WWII, was the building of the railways. They cut a swathe through our cities and destroyed centuries of slums, because compulsory purchase laws were passed on the scale of confetti; eliminating the oppressive vice held over development by property owners. In scale, the next slum clearance operation happened with Hitler’s bombs.
We need wholesale land reform. root and branch. Like everything else, the real problems are just being fudged. We have the oldest, and worst, poorest insulated housing stock in Europe. It isn’t an accident. It is all ‘of a piece’ with our whole approach to property. It is a complete disaster. We do not build homes. We don’t even have adequate building regulations. We have a population growth far in excess of an almost static housing stock. the UK population is 67m. There are around 30m dwellings in the UK. We build around 200,000 new dwellings per year (0.67%). You do the maths. Meanwhile, property owners are not in the vanguard of changing anything, because shortage of supply and no serious land taxes suits them perfectly.
If you want better homes why tax those who own them more so they do not gave the means to invest in those homes?
If you want to bring property into use, regulate to do so
If land ownership is concentrated for non productive purposes, as in Scotland specific regulation is required, and maybe special taxes
But why LVT? I still don’t get it. Tax is really useful, but it simply can’t do everything
Sweeping simple global solutions are very appealing. It means we don’t have to think too much.
Land value tax may not be a panacea, and I suspect a development land tax would be almost as difficult – it would need two valuations, albeit only when planning permission was granted not for every property.
We already tax planning gain when there is a realisation event – when an owner sells to a developer, or when a developer sells, or over time when the development is rented out. Imposing “dry” tax charges on charges of valuation, but no underlying cash flows, is a difficult thing.
Does it make sense to charge income tax or corporation tax at a significantly higher rate on passive rental income than say on the profits of hotels or guesthouses? Can I can cut the tax rate on the rent by 15% by providing some additional services (say towels and bed linen, weekly cleaning, and breakfast)? Or will you require some sort of apportionment between the price for the room (taxed at a higher rate) and everything else?
What certainly does need doing, but no government seems to have much appetite for, is substantial reform and ideally replacement of council tax and business rates, and reform to the funding of local authorities so they are not living so hand to mouth. Surely we can learn from what other countries do?
I agree with your conclusion
A well argued rebuttal re LVT. I have always found the arguments to be flawed in a number of ways including those you set out. Proponents talk about the ‘best use’ of land – whatever that is! It would in effect encourage the development of land whether it was necessary or not. Proponents also ignore the effect of household earnings. Those on higher earnings could afford to pay any LVT those on lower earnings not. We would have a system which would allow second home owners and owners of holiday lets to prosper while those on low incomes would not.
LVT also ignores why land values increase. One is scarcity, another is asset value inflation.
The assertion that land values are the result of investment by the community is flawed. Higher values in London reflect the impact of the financial centre and other major centres – many of which are private sector. In the countryside values are often higher because of the local environment – which is provided by people who manage it – again its not public investment. [I probably boost the value of some neighbours properties due to environmental work!] Values near airports are often higher – whether the airport is private or public sector!
LVT is one of those simplistic panaceas rather like Universal credit which purport to solve all problems but in reality does not.
Personally I prefer limits on property ownership – there is no need for large estates or for hedge fund managers to own farms!
This is very much an off-the-cuff reaction as to why I think a land value tax would be unworkable/unfair. I must also say that I am not a tax expert and really only have knowledge of the tax I actually pay, and have had no exposure to the general world of taxation.
The taxes that I can think of are all levied on money flows (which is as I think it should be).
LVT would not be levied on a money flow but a money stock. I suggest that this is an all important difference that means that, over time, anomalies would grow and become grossly unfair.
Therefore, I don’t see that land value is pool money available for the taxman to get is hands on while ownership is unchanging. It is purely notional at any particular time. Changing ownership represents a flow an then, yes, tax should be levied (as it already is).
Agreed
Thank you to Richard, Neil and John S. I don’t disagree.
I’m very interested in this and have books and maps on land ownership going back to the 18th century.
I was in Deauville for the long week-end and saw a replica of William’s flagship being constructed at Honfleur. The 1000th anniversary of his birth is in 2027. Preparations are in progress in France, the UK and Ireland, including a BBC and CBS documentary series.
Richard said: “The proponents of land value tax like to claim that it is the universal answer to all taxation problems because land is in finite supply, we can always identify who owns it, it’s always here in the UK, therefore we can tax it, no one can avoid the charge, and what is more, this is the fairest way in which to levy all taxation, because all of our wealth, apparently, is derived from the land.”
With regard to identifying who owns land, land ownership and tax reformers should be prepared for the mother of all battles. It won’t just be the aristocracy putting up a fight, but City and other firms “land banking” and new money who have invested in land to emulate the aristocracy, avoid tax, put money in assets not linked to dodgy colleagues etc.
We seem to have the same hymn sheet
Nobody, anywhere in the world buried the feudal system so deep and for so long or so systematically, into property law, as the Scots elite and their families (they weren’t stupid, they made sure the younger offspring were the lawyers, advocates, judges and Writers in Signet); and deliberately buried it deep into its property law, to protect the elite’s total grip of ownership of all the usable land in Scotland (established by greedy and rapacious barons, as the price of backing the Reformation; gobbling up the Church lands not gobbled up by the Crown). The Reformation was supposed to be backed by the First Book of Discipline. That never saw the light of day, and was replaced by a calculatedly weak Second Book of Discipline, with all the teeth drawn.
Nowhere was land ownership so narrowly held (and largely, outside cities still is), as Scotland. It has had terrible economic and social effects. Feudal property rights were only finally swept away in Scotland – in 2000. The land and property system remains deeply unsatisfactory and even dysfunctional (surrounded in an atmosphere of denial, from house building, the cost of private rent, council tax, mortgages – everything), and the SNP, as in England is too afraid – even to discuss it; still less do anything of substance.
Only the weak and poor ever pay the full price of this idiocy.
You name the problem here
This is wthin the remit of the SNP to solve and people like Common Weal suggest ways to do so – although we do not agree on LVT.
I will not prolong the debate; we simply differ on LVT, but I just wish to close by saying that England also has serious problems with over-generous property rights, that allow profit gouging on long leaseholds (including new developments). It does not appear clear to me that the new (pre-election 2024) legislation will stop the profit gouging (but I stand to be corrected). If not curtailed in the legislation, no legislator will return to the issue anytime soon; and so it goes on.
We agree on that, but LVT would not solve that.
I would not say that I am an expert on tax.
However, I think I can handle the principles around tax.
Taxing physical assets of any kind seems a rather difficult task. Land itself is very varied (its form, its use, its location for example) and with variations comes argument and the contesting of. And out of that springs the need for fairness and consistency as well. LSVT could genuinely hurt some people. Look at the sugar tax and who that actually hurts?
I agree with others above. Tax the liquidity of the money that flows from land (and maybe other assets).
Again Richard, I am impressed with how you delve into these matters – no lazy consensus of anything for you!
And also – at the heart of your suggestion – there is the need for good,effective accounting.
We are in close agreement
Reading the various comments I get the impression that there is some idea that LVT might possibly be implemented.
I would like to suggest that, as a principle, taxes should only be charged on income, and not capital, ie the flow of money, not on the stock of things owned. The value of land is purely notional until it is sold.
I accept entirely the point made that a few people do have what would be considered by most as an excessive amount of wealth, which is often held as land. The point at which this should be taxed is when the money is first acquired, ie. income. If a person still has the money, after all taxes have been paid, to spend on an estate, then so be it. If the aim is to take away ownership of such assets, then the time that should happen is at the point of sale – when ownership changes. The state has to wait until then. The laws for any taxation would of course need to passed by Parliament. The emphasis needs to be on collecting all the tax due and closing loop-holes which allow some to avoid paying tax at the same sort of rate that most in this country do.
Fundamentally, it’s called freedom of choice. This, I believe, is fundamental to our society. It is one of the key differences between our country and some others in the world where they do not have freedom of choice. Taking away freedom of choice sounds to me to be leading our society towards a totalitarian state. I would hate to see that happen.
“I also think it very odd that we claim that we do not need to tax labour because if we were to do so, then I believe that the capacity of a government to raise revenue would be severely diminished”
I do not understand what this statement is trying to say. My Brit English to Yank English translating is failing me.
I don’t think we can do without an income tax, is a summary
Thanks!
In respect of this statement:
“the naive assumption that somehow or other a landlord will pay a tax and not pass it on inside the rent that they pass to a tenant is absurd”
I would point out that the reason why the added cost of a land tax would not be passed on to the tenant is because the supply of land is perfectly inelastic so land rents depend on what tenants are prepared to pay rather than on the expenses of landlords, and so the tax cannot be passed on to tenants.
This reasoning was laid out by Adam Smith in The Wealth of Nations Book 5, Chapter 2, Part 2, Article I: Taxes upon the Rent of Houses.
Sorry – but none of that is true, not least because land is in very short supply due to regulation
I know no tenant who thinks they are in control of what they might pay
Can we discuss the real workld here? There is an awful lot of fantasy economics out here today because I have mentioned land value taxation – the idea of whoch is riddled with fantasies, not reality
And every landloord seeks to, and almst invariable does, pass on cost to tenants in the UK – as recent rent hikes evidence. Your claim is false in the real world
Richard you are right that owners, try to pass on the higher costs of higher rates etc. but I am inclined to agree with MR. Hoare – he is describing why housing bubbles burst.
The reason the housing market is so unaffordable is that vendors already sell at what the market will bear. Consequently vendors find they can’t raise the rates for long unless they create illegal living conditions. Both commercial and residential sale prices have been falling, as have leases. Some owners are selling at distressed prices for that reason.
Smith Friedman et al support Mr. Hoare – in the long term they are right. Housing bubbles burst.
But I think it the home ownership and not rental markets that create that situation
Matthew
Please could you explain that to people renting homes whose rent has ballooned far above their ability to pay it.
One suggestion I might make is to replace business rates with a tax on commercial rents which gets around both valuation issues and the problems that you get with business premises being constantly altered.
Clearly there would have to be provision for business that own their own premises and vacate property
Richard because I am a pragmatist I see much merit in your concerns and alternative suggestion. However the dysfunctional real estate market is the source of so much inequality and wealth extraction. So huge is this failed market that major macro policy is needed.
One of the most market oriented societies, Singapore, has made a massive intervention which has resulted in 90% of the population owning their residence.
https://www.abc.net.au/news/2024-08-18/singapore-homeownership-sock-yong-phang-henry-
I am reading the feedback.
I don’t post to preach. I post to learn.
RE:I am reading the feedback. … I don’t post to preach. I post to learn.
A truth seeking process we should all emulate!!
I agree that
– LVT is not a Panacea
– the world is much more complex than Henry George’s 19th century – governments and their revenue was much smaller
– Increasing capital gains on real estate gains would capture economic rent. Does it make any sense for incenting previously built residences and apartments qualifying for a tax incentive designed to encourage new production?
– That other measures like your surcharge proposal should be tried…. we need to use all the arrows in the quiver
But please consider some very fine economists (Stiglitz, Kumhof, , Goodhart, Hudson, Martin Wolf, Adam Smith, Ricardo) have supported doing things about the economic rent that dominates the housing market. Friedman supported a land value tax.
A group of four Nobel Laureates and other economists, and an expert assessor Ted Gwartney, promoted land-value taxation to Gorbachev https://en.wikipedia.org/wiki/Open_letter_to_Gorbachev
And The Wall Street Journal sees the value of the LVT – https://www.wsj.com/video/series/wsj-explains/the-invisible-role-taxes-play-in-americas-housing-shortage/3B6959A8-71A5-4943-94C6-DE52E3AB8DD0?mod=Searchresults_pos2&page=1
Expert assessors have said changing the system would be no big deal.
Pennsylvania had a successful program for some time with a dual system, and it was revenue neutral.
https://blogs.ubc.ca/rosonluo/2013/04/08/land-value-tax-policy-in-harrisburg-pa-u-s-densification-policy/
It worked well in Vancouver until vested interests lobbied against it.
https://twitter.com/pmcondon2/status/1695539736545513636
LVT discourages land hoarding and speculation, making housing more affordable.
Thank you, Mr Polito. Well made points. Sock-Yong Phang, ‘Housing Finance Systems: Market Failures and Government Failures’ (2013), appears to have been instrumental in the success (I confess I have only read short excerpts).
More direct, shorter and to the point: Sock-yong Phang, “Economic Development and the Distribution of Land Rents in Singapore: A Georgist Implementation”; The American Journal of Economics and Sociology , Oct., 1996, Vol. 55, No. 4 (Oct., 1996), pp. 489-501. Available on JSTOR if you have access, or directly here: (https://cooperative-individualism.org/phang-sock-yong_economic-development-1996-oct.pdf).
The Abstract begins thus: “Independent Singapore, which has a tradition of free trade, has implemented large doses of Henry George’s prescriptions. It has successfully captured land rents for redistribution through its land acquisition, public housing and other programs”.
I am not an ideologist, and the test for me is how it works, but prima facie at least; this seems to work.
It works within the very severe constraints on freedom Singapore creates
There are constraints in Singapore, but it does not follow that the implementation of a Georgist idea, adjusted to local and modern circumstances, means it can only possibly work there, under Singaporean conditions. That would be a non-sequitur. The point is, it is worth exploring.
Sock-yong Phang in her journal paper is in fact critical of the Singapore Government for not following though sufficiently. She closes her account with this paragraph:
“Finally, to what extent are the land rent capture policies in Singapore appli elsewhere? One may argue that such draconian policies were able to be implemented because of circumstances peculiar to Singapore in the 1960s and 1970s: there were few large landowners; there was a sense of urgency resulting the crises of separation from Malaysia and the withdrawal of British troops; Singapore has a one party government which is also virtually corruption free. But not all these factors are unique to Singapore. Since its partial modified application of a key idea of George has had promising results, they may find wider application in other countries, especially developing ones”.
I would also be interested in Song-yang Phang’s view of the prospects in developed countries (given the mess our housing stock is in), almost thirty years after her article was written. We have to be open minded to fresh thinking; we have to be, given the poverty of real solutions in this area, and the endless prevarication of politicians.
How about this as a more practical alternative?
Nationalise all mortgage lending with the BoE. The interest functions as a proxy to an LVT, without the price setting problem since the private property market would be retained. This simultaneously solves the problem of money creation by private banks. The generated “income” (money destruction, in MMT terms) should be used to reduce or remove other taxes (council tax, income taxes), which would sell this to the public.
We will lose some private banks in the process, but that’s a risk I’m willing to take.
From here, various other options are on the table. To end private landlording, a universal right-to-buy for renters and higher rates for mortgages on second homes. Putting the BoE back under political control with the Treasury. Mortgage amounts capped to interest payments being a fixed percentage of income, say 25%, at a fixed rate, i.e. not dependent on the loan being a certain percentage of property value. Simplify all banking by making BoE mortgages double as checking and saving accounts, simply by issuing a debit card and making the maximal mortgage amount the overdraft limit.
Sorry, but this is utterly unworkable
For example, mortgages in no way approximate to lvt
And we do need commercial banks
I appreciate you raising the issue of LVT Richard and the informative discussion that followed. I’d welcome any comments on how the specific case of concentrated ownership, land banking and speculation in Scotland might be addressed by other means. I was annoyed to read that one of the largest land owners in Scotland pays tax on these assets as a citizen in Denmark but is not required to make any such contribution in the UK. Andrew said ‘Surely we can learn from what other countries do?’ Joseph Polito cited useful examples. Is some form of land tax a workable solution if not a panacea?
That might require a specific land tax e.g. a recreational land use tax
A well made point. LVT is not a “panacea”. I made that clear at the beginning; that forces the debate toward straw-man territory.
The position of land and property rights in Britain is part of the basic dysfunction that makes it so hard for government to achieve, or even do anything. It is the scale of the land and property rights problem that has now made it impossible for even central Government to contemplate bringing a new railway line into central London. I do not say this to make a point about the merits of HS2, but rather the paralysis of government, when confronted by untaxed property rights and rampant nimbyism; because nobody will dare even confront the issue.
Thus “panacea” is not the issue to fight over. It is an illustration of Britain’s inability to face its real problems; from property, through Government financing, to Brexit.
From YouTube: “Here is Western Australia, a state government department determines the unimproved value of all properties. They are reassessed every 3 years. They have access to the data for all property sales including vacant land. They can also assess the value of the buildings on the land using quantity surveyor data and also the insurance upon those buildings. Working it out is not that difficult if you have the data. Applying a land tax would be relatively simple.”
After watching the YouTube video and reading the comments (all 177 of them), I can say that the Property Tax system in the USA is similar to that in Western Australia.
However, the Property Tax system in the USA in nothing like the LVT that Richard describes. After taking the time to research the topic and discussing with Yank friends much smarter than me, I have to agree with Richard, a LVT (as described in the video) will not work.
Thanks
Richard, Re: But I think it the home ownership and not rental markets that create that situation
First let me say your own proposals and changing capital gains, and LVT would all contribute to preventing the following:
Something like half the condos in Toronto Canada are being bought by investors. Their business model is to have the rent cover their carrying charges – often with little profit and often a little loss, but make it big with a future sale with big appreciation. Currently the new condos are selling for less than the investors paid. Those that are losing money are selling and losing equity – this is a bubble bursting.
Those investors outbid the regular buyers, fueling more speculation.
In the early 90’s commercial properties dropped 30% thanks to a Bank of Canada tight money policy. It took a decade to return to the commercial and residential prices.
In 2008 similar losses were seen.
The Tulip bubble lessons still apply 🙂
Back at you John Warren!! Good points and good links!
Richard refers to constraints on freedom, but Singapore has affordable housing and 90% ownership. I would suggest the dysfunctional housing markets in the west have reduced economic freedom. The system extracts wealth, charging what the market will bear. That is not a mark of competitive markets like computers and housing. The housing market is more like monopoly.
All the measures proposed in Richard’s post and comments including his capital gains idea could restore some economic freedom. LVT could be part of that recipe. They could drive away the speculators, fast buck artists, and land hoarders to drive down the price of land and housing.
More public housing is necessary too. In Canada as the neoliberal policies gained traction, public housing fell
https://policyfix1.files.wordpress.com/2013/03/social-housing-as-percentage-of-all-housing.jpg
“Richard refers to constraints on freedom, but Singapore has affordable housing and 90% ownership. I would suggest the dysfunctional housing markets in the west have reduced economic freedom”.
Affordable housing and 90% ownership. In Britain? Not even a political fantasy.
There is no chance of replicating Singapore here – thankfully
It is a repressive society.
I am not suggesting that. I have already made the point that answers that:
There are constraints in Singapore, but it does not follow that the implementation of a Georgist idea, adjusted to local and modern circumstances, means it can only possibly work there, under Singaporean conditions. That would be a non-sequitur. The point is, it is worth exploring.
Sock-yong Phang in her journal paper is in fact critical of the Singapore Government for not following though sufficiently. She closes her account with this paragraph:
“Finally, to what extent are the land rent capture policies in Singapore appli elsewhere? One may argue that such draconian policies were able to be implemented because of circumstances peculiar to Singapore in the 1960s and 1970s: there were few large landowners; there was a sense of urgency resulting the crises of separation from Malaysia and the withdrawal of British troops; Singapore has a one party government which is also virtually corruption free. But not all these factors are unique to Singapore. Since its partial modified application of a key idea of George has had promising results, they may find wider application in other countries, especially developing ones”.
I would also be interested in Song-yang Phang’s view of the prospects in developed countries (given the mess our housing stock is in), almost thirty years after her article was written. We have to be open minded to fresh thinking; we have to be, given the poverty of real solutions in this area, and the endless prevarication of politicians. It is worth exploring because our system of property is part of the problem; not the solution. Actually, that has been clear – for centuries.
Richard I think John Warren is right. Magicians have several ways to perform a trick.
You have already identified strategies to reduce prices such as higher capital gains taxes would nudge investors to seek profits elsewhere.
Proper rent controls would prevent charging what the market will bear. We are saying like the Wall Street Journal and Financial Times (Martin Wolf, Goodhart) and many other economists that land value taxes would make it too expensive for investors to hoard land. These and other measures would reduce costs, permitting more construction. Lower prices increase sales and affordability. None of this is repressive.
Why are we going to hit every household with an incomprehensible tax for this reason?
And why too use tax? Wouldn’t regulation be much better?
And what do you want done with all this land? If it is urban redevelopment why not just impose council tax at 10 times normal rate? Wouldn’t that be vastly easier?
My point is always look for the easiest solution.
I am not sure what would be uniquely incomprehensible; in a sense all tax, from the perspective of the taxed is incomprehensible, since it expresses the sovereign right of the tax setter to determine whatever is taxed and what is paid by whom, without let or hindrance by the taxed. There are contentious areas anomalies, hard cases, and at the margins harms in most taxes. The advantage for the taxes you prefer, is 150+ years of habit and custom in which people accept the principle, without needing to think about it. All they argue about is rates, allowances and exceptions; because that is how the game is customarily played. I believe we need to think outside the customary box; and LVT is an established, and shown to be successfully applied in the modern world
John, I agree! But if we can get Richard to promote the trio of his surcharge, Capital Gains changes, and proper rent controls, it could be a huge blow to the dysfunctionality of the housing market!
Once the politicians understand the wealth extracting rent-seeking of this industry is the core of unaffordable housing they would be ready for further measures like LVT. In the meantime we can work on Richard 🙂
Well Richard we are agreed on your capital gains comment. What about proper rent controls?
I believe in them
Richard I would be delighted if we implemented your surcharge proposal, your acceptance of changes to capital gains and real estate, and a strong rent control system. All three would discourage speculation, land hoarding, charging what the market will bear, … resulting in lower land and rent costs, and more affordable housing.
As those measures are implemented you will have lots of time to mull over the letter by four Nobel Laureates promoting land-value taxation to Gorbachev https://en.wikipedia.org/wiki/Open_letter_to_Gorbachev
… and video by the The Wall Street Journal – https://www.wsj.com/video/series/wsj-explains/the-invisible-role-taxes-play-in-americas-housing-shortage/3B6959A8-71A5-4943-94C6-DE52E3AB8DD0?mod=Searchresults_pos2&page=1
… incremental change is a good strategy